The focus will now be on the capital markets & the economy in longer
trm perspective...I have wanted to do this for a long while and have
wearied of outlining near term perspectives...Short term opinion has
become an overcrowded field...

About Me

Retired chief investment officer and former NYSE firm
partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader,
and CIO who has superb track
record with multi $billion
equities and fixed income
portfolios. Advanced degrees,
CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms:
CAVEAT EMPTOR IN SPADES !!!

Tuesday, October 24, 2006

Most everyone expects the Fed will leave the Fed FundsRate unchanged at 5.25% when the FOMC winds up a two daymeeting tomorrow. This time, the fundamentals the Fed tracksmost closely line up to support leaving the FFR% as is. Idoubt the staff at the Fed was happy to see the Board gofor the pause as early as It did, but the fundamentals havefollowed.

The breadth of short rate sensitive economic growth experienceda cycle peak in mid - 2004, just as the Fed elected to raise rates.The deterioration of breadth -- number of industrial sectorsencountering slower growth -- has been more gradual than in priorcycles when the Fed was raising rates. This large component of the cyclical economy is now much closer to levels that would signalthe Fed it should reduce the FFR%. However, unless there is a sudden steepening of the slowdown, the Fed may feel no compulsion to ease up soon.

Looking more broadly, the Fed must contend with two factors. Itneeds to make a guesstimate whether the economic effects of aprotracted but gradual round of tightening have been fully reflected in the economy, and it also needs to study to whatextent the sharp recent deceleration of inflation may engendergrowth via a boost to real incomes and confidence. Finally,since available data indicate continued very slow growth of USproductive capacity, the Fed needs to factor in a longer rangeinflationary bias to the economy.

The growth of monetary liquidity has all but halted since thesummer. The Fed has tightened on the liquidity front to counterthe acceleration in growth of credit driven liquidity reflectingstrong bank lending expansion. All well and good, so long as thecentral bank remembers to reverse course if and when credit growthslows.

The stock market is slightly less overbought in the very short run, but is also now overbought on my six to thirteenweek indicators. Moreover the measures of sentiment I watch havedeteriorated as well. The trend is up but it is well recognized.

Sunday, October 22, 2006

The leading indicator data sets I follow continue topoint toward slow growth for the US economy. New orderdiffusion indices covering both manufacturing and theservice sectors are positive but subdued. The recentvolatility in the services sector new order index isinteresting, because the sector has been more stablethan the more intensely cyclical manufacturing sector.It may well be that the run-up in the oil priceexperienced from late Nov. ' 05 through mid - Julytook a toll on profit margins and confidence in thissector, where pricing power can lag rising costs.

Monday, October 16, 2006

The SP500 at 1369 is now not only overbought short term,but is getting extended as well. There has been talk that investment managers could be ready to chase stocks, butthere is no evidence from the tape to support the story.If managers are going to maintain discipline, the market will struggle over the next week or two. A sharp move upfrom here would be the first tangible evidence that the tight discipline is breaking down. Back in my heyday asa chief investment officer, it was great to see 'em go upwhen they should, but annoying when your guys and others would start chasing, since that could bring unwanted volatility down the road.

Monday, October 09, 2006

The market has worked steadily higher through thespooky season. Investment managers have shown remarkablediscipline, not chasing the market when it gets 2.0 - 2.5%above its 25 day M/A, and coming back in on the dips.So the pace has been cautious and deliberate, and chiefinvestment officers have had little to yell about. It remains a low volatility period, plodding along in a disciplinedfashion. Portfolios are being diversified away fromenergies and commodities as the relative earnings performanceof these sectors appears set to lag the broad market.

The Fed is on hold as inflation momentum dissipates and theeconomy falls into a slower growth mode.Investors are slowlyand deliberately coming around to accepting a successfulsoft landing and are beginning to look forward to a strongseasonal period spanning November through January.

The Democrats seemed to have gained some momentum in recentweeks, but even if they capture one or both of the houses,the market will settle for a gridlock scenario.

There has been talk of an October surprise all year. In theearly going, it was widely thought that Bush/Rummy wouldbring troops home. The gold bugs remain firm that there couldbe a pre-election raid on Iran, but that situation seems to be processing through the rewards vs. economic sanctions routefor now.

My guesses for surprises are November events -- more troops toIraq and a possible Rummy resignation, coupled with more intensefighting there. These events could raise concerns about thebudget and the US dollar and might disappoint the bond and stockmarkets.

For now, I am stuck with the soft landing picture, but one with possible fiscal complications later in the year.

Monday, October 02, 2006

A look at the varied sets of economic indicators I trackshows we should expect further slowing of growth, but theindicators have as yet to experience the sort of downward break that would herald a severe slowdown or recession. Asone might suspect, the coincident economic indicators arestarting to flatten out and lose momentum measured year overyear.

The continuing rallies in high yield or junk bonds and inintermediate corporates also indicate that investor confidencein the economy remains intact.